(Newswire.net — December 18, 2018) — Contrary to the market rallies that characterized the first half of 2019, markets in the United States have experienced a steady decline since early December. In fact, as of the morning of December 12th, the Dow Jones Industrial Average had yet to produce net yearly gains (opening roughly 300 points lower than it did on January 2nd).
Other major indexes, including the S&P 500, NASDAQ, Russell 2000, and several others, have had similarly disappointing ends to their year, despite also experiencing relatively strong beginnings. Though there is currently some hope on Wall Street that—with the right actions by both corporations and various government entities—things may potentially turn around, others who hold a much more pessimistic outlook, claiming that these bearish markets may be heading towards another major recession.
Naturally, investors and traders of all kinds will hope to approach the new year with a strategy that is capable of withstanding future sources of turbulence. As the IBD/TIPP Economic Optimism poll has plunged from 58.0% in August to 52.6% in early December (where anything below fifty is considered generally pessimistic), it has become clear that many relevant market makers may begin to adjust their portfolios.
Despite the fact that Bitcoin—the most popular and widely traded cryptocurrency in the world—has had a terrible year (dropping from $19,783.06 last December to $3,435.81 in the status quo), the increasingly negative reading of “traditional” markets may be the silver lining that the cryptocurrency industry needs. As investing in the DJIA, S&P 500, and other relevant indexes has become a less attractive option, the opportunity cost attached to exploring new markets is something that has correspondingly decreased.
Weak Correlations between the Stock Market and Cryptocurrencies
Generally, as bearish market conditions begin to formulate, some investors find themselves looking for opportunities that have a weak correlation (or even a reverse correlation) with the performance of American stock markets as a whole. This is largely due to the fact that investors recognize the flaws of simply redistributing their wealth to an alternative asset moving lock-step with the stock market in a downward direction.
For the first half of 2018, the value of Bitcoin and the value of all major US stock indexes were moving in opposite directions. While Bitcoin was draining its initial value, the stock market was subsequently soaring. Though there are obviously many moving pieces involved, it is highly probable that some of the wealth initially seeded in the Bitcoin market was being reinvested into much safer, time-tested stocks.
Now that the stock market is experiencing a general state of decline, transferring capital from stocks into cryptocurrencies has become a much more appealing option. In fact, as many financial experts will claim, constructing a diverse portfolio of weakly correlated assets is one of the few ways to decrease exposure to market-specific (beta) risk. For this reason many traders have turned to Bitcoin day trading as a popular strategy to diversify assets.
Increasing Competitiveness of Alt-Coins
For some risk-seeking investors who are—quite rightfully—concerned about Bitcoin’s pitiful performance over the past 12 months, the need for alternative investment options is quite pressing. However, despite—or perhaps, because of—this measurable decline of the world’s largest cryptocurrency, the number of available alternative coins (alt-coins) has considerably increased with each passing year. As of early December 2018, the cryptocurrency market has reached an all-time high of 1,658 different coins.
The rise of the alt-coin market is something that is very likely to continue into the perpetual future (and almost certainly through the end of 2019). Though many of these coins will almost inevitably fail to launch, the few that are actually able to may enjoy significant increases in value regardless of the S&P 500’s performance or even the performance of the general crypto industry as a whole.
The alt-coin market, like many comparable markets, is one that presents potential investors with a high degree of risk as well as the potential to earn large returns. In order to distinguish the coins with strong prospects from those that are relatively “noisy”, it will be important to pay attention to crucial indicators and carefully monitor asset-specific news.
From a distant perspective, there is no denying that the decline of the United States’ largest financial markets presents an objective level of risk to the global economy as a whole. However, for those who are willing—and financially able—to take risks, the decreasing reliability of these “safe” investments opens up an unprecedented world of alternative investment options. Now that the cryptocurrency industry has begun to build some legitimate infrastructure (which it did not have in 2008), the potential coming of a new recession may be exactly what it needs to secure its long-term existence.